Telefonica Brasil Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 26, 2025

Key Takeaways

  • Total revenues rose 7.7% year-over-year in Q4 with mobile services up 7% and fixed revenues up 8%, driving a 7.8% increase in EBITDA to record levels.
  • Postpaid accesses reached 66.5 million (+7.6%) and FTTH connections grew 12.7% to 7 million, while churn remained at historic lows, bringing Vivo’s total customer base to over 116 million accesses.
  • Vivo generated BRL 13.7 billion in operating cash flow (+11%) and BRL 8.2 billion in free cash flow, enabling BRL 5.8 billion in shareholder remuneration (105% payout) and reaffirming a commitment to distribute at least 100% of net income in 2025–26.
  • Digital B2B services expanded over 20% in 2024—led by a 32.6% jump in cloud revenues to nearly BRL 2 billion—and new B2B/B2C offerings now account for more than 10% of total revenues.
  • Vivo signed a landmark agreement to migrate fixed voice from concession to authorization, unlocking an NPV of BRL 4.5 billion through asset sales, opex/capex savings and migration of over 1 million copper customers to fiber or mobile.
AI Generated. May Contain Errors.
Earnings Conference Call
Telefonica Brasil Q4 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good morning, ladies and gentlemen, and welcome to Vivo's Fourth Quarter 2024 earnings call. This conference is being recorded, and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. To access, you can press the globe icon located on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select "Mute Original Audio." [Foreign language]. We would like to inform you that our attendees will only be listening to the conference call during the presentation, and then we will start the Q&A section when further instructions will be provided.

Operator

Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo's executive board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry, and other factors that could cause results to differ materially from those expressed in respective forward-looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the company. Mr. David Melcon, CFO and Investor Relations Officer. And Mr. João Pedro Soares Carneiro, IR Director. Now, I'll turn the conference over to Mr. João Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr.

Operator

Carneiro, you may begin your conference.

João Pedro Soares Carneiro
Investor Relations Director at Vivo

Good morning, everyone, and welcome to Vivo's Fourth Quarter and Full Year 2024 earnings call. Christian Gebara, our CEO, will walk us through Vivo's performance in connectivity and digital services, as well as present our ESG accomplishments for the year. Then, David Melcon, our CFO, will give more details on cost and CapEx control, free cash flow generation, shareholder remuneration, and lastly, an update on our fixed voice migration process. With that, let me turn the call over to Christian.

Christian Gebara
CEO at Vivo

Thank you, João. Good morning, everyone, and thank you for joining us today. I'm very pleased to present results for 2024. We finished the quarter and the full year with an excellent performance driven by our best-in-class products and services that allow us to continue to increase the lifetime value of our customers with churn at historical lows. We reached 66.5 million post-paid access in 2024, with a growth of 7.6%, reinforcing our capacity for strong mobile performance in 2025. In fiber, the number of homes connected grew 12.7% this quarter, totaling 7 million access. In total, Vivo reached the largest customer base in our history with over 116 million access. Total revenues increased by 7.7% in the fourth quarter, with mobile still being the main driver, growing 7%, while fixed revenues grew 8%, the best performance that we have ever registered for this segment.

Christian Gebara
CEO at Vivo

Our top-line expansion was fully reflected through EBITDA that increased by 7.8% year-over-year. We invested BRL 9.2 billion in 2024, decreasing our capital intensity, and with that, registered BRL 13.7 billion in operating cash flow, growing 11% year-over-year, representing almost 25% of our total revenues. In 2024, we paid over BRL 5.8 billion to our shareholders as remuneration grew by an impressive 22% year-over-year. That was the equivalent of 100%-105% of the net income generated in the period, thus meeting our guidance that we hereby reinforce for the next couple of years. On slide four, we show how our performance has been positively impacted by the shift that has been occurring in our revenue mix, with emphasis on post-paid, fiber, and B2B digital services.

Christian Gebara
CEO at Vivo

The mobile segment ended the year representing 65% of our total revenues and still benefiting from our ever-improving customer base with strong prepaid to post-paid migration figures. As such, post-paid revenues grew 9.1% in the fourth quarter, representing 84% of our total mobile service revenues. In addition to that, fixed revenues grew 8%, the highest annual growth ever, driven not only by the double-digit growth of 12.4% in FTTH, but also by the 21.1% expansion of data, ICT, and digital services as the take-up of digital solutions by our B2B customers accelerates. I would also like to highlight the replicable market position of our digital ecosystem. Our new businesses combining B2B and B2C services now represent more than 10% of our total revenues. With our one-stop-shop position, we're moving further and further from being just a connectivity provider while enhancing the overall lifetime value of our customers.

Christian Gebara
CEO at Vivo

On the next slide, we highlight our main mobile trends. Our mobile base grew 3.3% year-over-year, reaching over 102 million accesses. Post-paid has been the main driver, with a high single-digit growth of 7.6%, reaching over 66 million users. In fact, the number of post-paid quarterly net additions, including M2M and dongles, was once again very high, nearing 900,000. We are not only attracting more customers, but also increasingly retaining the existing one, being able to maintain post-paid churn below the 1% per month level for another year. This feat, coupled with expanding ARPUs, provides a very robust combination to deliver strong results in any scenario. As such, our leadership remains intact, supported by our inspiring brand, a best-in-class infrastructure, a broad, unique portfolio, and powerful channels. Now moving to slide six, where we can see more about our fiber operation.

Christian Gebara
CEO at Vivo

We reached our 2024 goal of delivering 29 million home passed with FTTH, which grew 11.2% year-over-year, while our homes connected expanded 12.7%, reaching 7 million connections. We have been accelerating the number of quarterly net additions, registering 220,000 new adds in fourth quarter 2024, 20% higher than the expansion seen in the same period of 2023. At the same time, we reached our lowest FTTH churn level ever at 1.49% per month, powered mainly by Vivo Total's superior value proposition. By the end of 2024, 2.4 million FTTH accesses had Vivo Total, up 85% year-over-year, with revenues from those plans growing more than 90% versus 2023. With a significant portion of new fiber sign-ups in our stores being convergent, we foresee fiber's performance improving even further going forward. We continue to see multiple opportunities to generate considerable returns by investing in fiber.

Christian Gebara
CEO at Vivo

Thus, going forward, we will maintain a selective expansion of our footprint while we step up the penetration of connections over our network. On slide seven, we show you more details on the B2C revenues. We closed the year with 57.2 million individuals as Vivo customers, over a quarter of Brazil's population. On average, our customers are generating a monthly net revenue of BRL 62.3, a number that has an evident improvement trend going forward as we are being successful in capturing additional share of wallet and increasing lifetime value, which translates into customer adherence to the Vivo's brand. B2C represents 76% of Vivo's top line and grew 7.2% in 2024, with our steady telco expansion combined with a 23.7% growth in new businesses.

Christian Gebara
CEO at Vivo

Here, I would like to highlight the strong performance seen in the sale of video and music OTTs, with revenue already surpassing BRL 700 million a year, growing close to 30%. We reached 3 million OTT subscriptions by year-end, boosted by our proprietary video platform, Vivo Play, with access soaring 84% in the period. Also, mindful of how important digital safety is to all Brazilians, we recently launched Vivo Modo Seguro, a platform including services such as smartphone insurance, blocking of spam calls, and tips on how to identify frauds and scams. With Modo Seguro, we want to ensure that our customers not only have the best connection, but also a secure experience in the digital environment. On the B2B side, our revenue growth was even higher, up 8.5% year-over-year in 2024, led by the outstanding performance of digital B2B that expanded over 20% in the same period.

Christian Gebara
CEO at Vivo

Among the vast number of digital B2B solutions that we provide to our clients, the main driver of this year's result were cloud solutions, with revenues getting close to BRL 2 billion, up 32.6% year-over-year. This derives from our broad portfolio of providers, as well as services of hyperscalers such as Microsoft, Amazon, and most recently, Google, benefited by the acquisition of IPNET, the main integrator of Google solutions in Brazil. The company was consolidated in our results in October 2024, contributing with BRL 64 million of revenues in the quarter. This showcases not only our ability to pick the right companies to join our ecosystem, but also strengthens Vivo's as a key cloud solution provider in the B2B market.

Christian Gebara
CEO at Vivo

Moving on to our ESG actions on slide nine, first, I would like to announce that we joined the Dow Jones Best-in-Class World Index, which is considered the most important sustainability index in the world. We are the only Brazilian telco in the list, being leaders in the Americas and having the sixth best telco sector performance globally, reaching a score of 88 points in S&P Global CSA. In our recycling program, Vivo Recicle, we achieved a new record of 37 tons collected, three times more than last year's amount. On the social side, Fundação Telefônica Vivo, that completed 25 years of activity in Brazil, invested BRL 50 million in 2024 and was able to benefit two million people across the country.

Christian Gebara
CEO at Vivo

Also, in Vivo, half of the internship and training programs positions were allocated to Black talent, which reinforces our diversity pillar and stresses its importance of the company's growth. With that, I will pass the word to David, who will comment on our financial performance. Thank you.

David Melcon
CFO and Investor Relations Officer at Vivo

Thank you, Christian, and good morning, everyone. On slide 10, we detail our cost evolution. Total OpEx grew 7.7% year-over-year, mainly driven by the 11% increase in cost of services and goods sold that expanded due to the continued double-digit growth in revenues from digital services and sale of smartphones and electronics. These services require no CapEx and contribute to extending the lifetime value of our customers. Our cost of operation, that represents 64% of our OpEx, grew 5.7% year-over-year, led by the cost related to our infrastructure expansion and strong commercial activity in the period. These factors were partially offset by the reversal of provisions related to the migration from concession to an authorization that positively impacted EBITDA in the amount of BRL 386 million in the quarter.

David Melcon
CFO and Investor Relations Officer at Vivo

On a year-over-year basis, this is compensated by the effect of BRL 292 million related to the reversion of provision for fines connected to the renegotiation of leasing contract with towercos that positively impacted previous year results. All in, we maintain our EBITDA margin at a high level of 42.5% in the last quarter last year, in line with the previous year, with EBITDA expanding 7.8% year-over-year. Moving to the next slide, we close the year with CapEx at BRL 9.2 billion, just 2.3% above previous year, reducing our CapEx over sales to 16.4%, with investment dedicated mainly to the expansion of 5G and fiber operations. By keeping CapEx stable and constantly increasing our revenues, we continue reducing our CapEx intensity in almost 1 percentage point.

David Melcon
CFO and Investor Relations Officer at Vivo

We also maintain a positive evolution of our operating cash flow that grew 11% year-over-year with a margin of 24.6%. After leases, operating cash flow grew even more, 13.4%, with over BRL 8.6 billion generated in the year. On slide 12, we see our net income closing 2024 at BRL 5.5 billion, with a growth of 10.3% versus the previous year, resulting in BRL 3.38 of earnings per share, up 11% in the period. The low financial debt protects the company in high interest rate scenarios. We close the year with a net cash position of BRL 1.4 billion, and including leases, a net debt of only 0.6x EBITDA. In 2024, we generate BRL 8.2 billion in free cash flow, translating into a free cash flow yield of 10.8%.

David Melcon
CFO and Investor Relations Officer at Vivo

These robust results showcase how Vivo continues to invest in high returns projects while also having a space for attractive shareholder remuneration. So let's talk about shareholder remuneration on slide 13. In 2024, we paid out over BRL 5.8 billion, combining capital reduction, interest on capital, share buybacks. This represents a growth of 22% versus the previous year, up more than twice the growth rate of our net income. As a result, we successfully met the guidance for the year 2024 by having a payout of 105% over net income. I would also like to reaffirm the guidance for the next year, 2025 and 2026, stating that we will have shareholder distribution of at least 100% of the net income that we generate each year. As such, we already started 2025 with around BRL 4.5 billion committed to this year's shareholder remuneration.

David Melcon
CFO and Investor Relations Officer at Vivo

And to do more, we just renewed our share buyback program that will be enforced until February 2026, with an investment capacity up to BRL 1.75 billion. To conclude on this topic, I would like to comment that last month, our board of directors approved a reverse stock split operation followed by a forward stock split. Our main goal with that initiative is to facilitate the trading of our shares and improve the liquidity in the Brazilian stock exchange. We will keep you posted on the next steps regarding this operation. Finally, we would like to give you more information regarding the fixed voice migration process, a game changer in both Vivo's history and the telecommunications sector in Brazil. By the end of 2024, we signed a self-composition agreement with the regulatory bodies to migrate our fixed voice model from concession to authorization.

David Melcon
CFO and Investor Relations Officer at Vivo

The process is in the last step, and in the coming months, we will formally conclude, at which point we will start to capture the benefits. With the conclusion of the process, we will execute projects related to the expansion of our 4G coverage and backhaul, with a net present value of BRL 4.5 billion, considering both OpEx and CapEx. This will take quality connectivity to many underserved regions in Brazil, helping to reduce the technological gap that exists in our country. Having concluded all administrative and judicial proceedings related to the concession, we released provisions amounting to BRL 792 million in the fourth quarter 2024, while also mitigating risks related to over BRL 5 billion in regulatory contingencies. This groundbreaking process is not only beneficial for Vivo, but also for our clients and society as a whole.

David Melcon
CFO and Investor Relations Officer at Vivo

More than one million customers that we are currently serving with copper could migrate to cutting-edge technologies such as fiber or mobile, having access to better products and services. As we migrate these users, we will accelerate our network transformation in the state of São Paulo, freeing up around half of the 1,900 owned or rented properties that we use to house our copper network, unlocking savings with energy, rent, property taxes, maintenance, security, among others. These movements will also enable us to extract and sell around 120,000 tons of copper and cable coating, simplifying our network. In 2024, we generated BRL 1.3 billion in revenues linked to copper-based services. Due to the high cost and CapEx associated with the provision of these services, the free cash flow coming from these revenues was negative, thus diluting the overall profitability of our business.

David Melcon
CFO and Investor Relations Officer at Vivo

Going forward, we estimate much better returns, and we'll keep you informed about the effects and the benefits captured along the way. This is a huge step in Vivo's history, and now, more than ever, we are fully able to deliver best-in-class fixed services across the whole country. Thank you, and now we can move to the Q&A.

Operator

Thank you. We are now going to start the Q&A session for investors and analysts. If you wish to ask a question, please press the raise hand button. If your question has already been answered, you can leave the queue by clicking on the same button. Wait while we pull for questions. Our first question comes from Leonardo Olmos from UBS. Please, Mr. Olmos, your microphone is open.

Leonardo Olmos
Leonardo Olmos
Deputy Head of Brazil Research at UBS

Hi everyone, good morning. First of all, thank you for the information on the benefits of the concession migration. This slide and the written information is quite helpful to us. Still, I'm going to focus my question on dividends for 2025. If you could discuss the perspectives of all the build-up of what could be the distributions in 2025, if you expect an increase versus 2024, because it already had a great increase versus 2023. We also saw that the benefits of the concession in terms of impacting net income, even though it's not cash, they stayed in 2024, right? So maybe the benefits of the concession will not be converted into dividends in 2025, or just likely. I don't know. If you could comment on the construction of how you see dividends this year would be very helpful. Thank you.

David Melcon
CFO and Investor Relations Officer at Vivo

Leo, thank you for the question. For 2025, as I say, we are committed to deliver a payout of 100% of net income or above for both 2025 and 2026. We have already on the way a capital reduction that will be paid on the 15th of July, amounting to BRL 2 billion. The outstanding interest on capital that were declared last year will pay on the 8th of April in the amount of BRL 2.2 billion. That's BRL 4.2 billion. We continue with our share buyback program that we already acquired BRL 200 million in shares in the first quarter, in the first couple of months. We have just approved a total plan of BRL 1.75 billion for the next month.

David Melcon
CFO and Investor Relations Officer at Vivo

So again, we are not giving guidance about the net income for the year, but you can see the strong trend that we have in our business, and particularly in terms of also the cash generation. So we have all the elements to continue having an attractive shareholder remuneration. Regarding the second question, also, I mean, the provision that we released in Q4, as you say, was mainly an accounting, but looking for the next few years, as we have described, we have a strong plan to monetize both real estate and also the copper, on top of also benefiting the cost lines that we have seen those quarters, that we have already implemented a plan that will be executed as soon as we have all the final approvals that we expect this to happen very early.

David Melcon
CFO and Investor Relations Officer at Vivo

So we are just in a moment where the transformation of our cost structure, particularly infrastructure, will take place, and you will see a positive impact on the trends.

Leonardo Olmos
Leonardo Olmos
Deputy Head of Brazil Research at UBS

Very good, David. Thank you very much.

David Melcon
CFO and Investor Relations Officer at Vivo

Thank you.

Operator

Our next question comes from Camila Koga from Bradesco BBI. Please, Mrs. Koga, your microphone is open.

Camila Koga
VP and Equity Research Analyst at Bradesco BBI

Hi, thanks for the opportunity to ask questions. So regarding the mobile service revenue, could you please give us more detail on the reasons for the quarter-over-quarter slight decrease and how you see it going forward? Thank you.

Christian Gebara
CEO at Vivo

So Camila, this is Christian. So thank you for your question. First, I think it's important to highlight that we have a very strong growth of 7% in the fourth quarter. And if you see the growth that we had in the postpaid, it's even higher. So that was a good outcome for the quarter. And if you compare your question, a quarter-over-quarter, it's true that we had a very strong third quarter. So the comparison, when you go one quarter to the other, it's not maybe the very fair because we grew 8.4% in the quarter before, if I'm not mistaken. Sorry, we grew in the postpaid, we grew 9.1% in the fourth quarter, and we grew 10.1% in the year before. When you go to the price increase that we had in 2023, we had an average of 9% increase in the second half of 2023.

Christian Gebara
CEO at Vivo

And when you compare to the second half of 2024, we had an average price increase of 5%. So again, when you compare year-over-year, we had a very strong increase in price in 2023 that we couldn't repeat in the second quarter of 2024. Postpaid, although it was very strong, 9.1%, we had prepaid softer in the fourth quarter. Again, due a lot to the migration. We've been migrating a lot of customers from prepaid to hybrid. You know, also if you look in the fourth quarter, we had 18% more migrations, and you could see our net adds of the quarter close to 1 million customers. That is also a very high performance that we've been having in the last quarter, but also to highlight in the fourth quarter. In November 2023, also I want to give you some update about the prepaid.

Christian Gebara
CEO at Vivo

That was when we increased our price from BRL 15 to BRL 17, and we couldn't do the same movement in the fourth quarter 2024. So that's impacting also the evolution that we see in the prepaid revenues. Again, we are working in many areas to continue to grow our revenues in the mobile, and we are very optimistic, especially because we are presenting a churn rate that is below 1%. We increased front-book prices of hybrid and improved postpaid now in February on average 7%-8%. We normally apply, and we'll do so in the price for the customer base in April, starting in April and going until August, and our commercial performance is still the strongest one in the market, not only in terms of acquisition of customers, but also the very low churn, and especially in the ability to offer mobile plus fixed.

Christian Gebara
CEO at Vivo

That's maybe the full explanation, not only the explanation from the third quarter versus the fourth quarter, but again, highlighting the very strong number that we had in postpaid, 9.1%, and our ability of price increase that we started already with the front-book, and we continue to do in our customer base starting now in April.

Camila Koga
VP and Equity Research Analyst at Bradesco BBI

Thank you.

Operator

Our next question comes from Bernardo Guttmann from XP. Please, Mr. Bernardo, your microphone is open.

Bernardo Guttmann
Equity Research Analyst at XP

Hi, good morning, everyone. Thanks for taking my questions. Actually, I have two from my side. The first one is related to margin. Excluding the one-off effect, the margin would have faced a year-over-year compression. What can we expect for this year considering the expectation of rising inflation? What elements could drive the margin up considering cost pressures? And the second question is about the change in the concession regime, trying to understand the company's approach regarding the sale of reversible assets, what we can expect in terms of the speed of selling copper and real estate assets. Thank you very much.

Christian Gebara
CEO at Vivo

I start with the second question, and then David will jump to answer your first. We have a four-year plan for the concession. We're going to start this year. As David stated before, there is a lot of upside here, especially that we have starting with the migration of customers. We have 1.2 million customers using the copper network. So we have here the opportunity to migrate these customers to a cutting-edge technology that's going to be fiber. Even here, we have a revenue impact that maybe we have cross-sale opportunities when you migrate these customers to fiber, and also, the cost to serve these customers will be lower because we're not going to use the copper that we kept until now, and now we can do everything with the fiber. Then we have like 120,000 tons of copper cables that we're going to be reducing.

Christian Gebara
CEO at Vivo

Of course, when we migrate, we are able to sell. We're starting this year, and during the next four years, we're going to be able to do everything. We have to keep some customers where we are the carrier of last resort, but it's only until 2028. Apart from these areas, we can do the migration in all the rest of the state. That is also a vast area that we can do this migration. Of course, then we have around 2,000 owned or rented properties in use. Today, for the numbers that we have, we can imagine that 50% of this total could be freed up for sale or can have a lease cancellation so that we'll also be able to give us a lot of savings and also upside in the sale of the real estate.

Christian Gebara
CEO at Vivo

So again, we have a great opportunity here to improve our results based on these operations that I briefly described to you. If you don't have more questions, I can give David to us talk about this one and EBITDA if he wants.

David Melcon
CFO and Investor Relations Officer at Vivo

Yeah. So regarding the first one, Bernardo, thank you for the question. So if you look to the evolution of our result, I mean, it's difficult to extrapolate one quarter in any on trends or neither on margins. So even excluding the others, the others line that you mentioned, the growth that we have on EBITDA for the full year, 9%. So it's a very strong growth, so 9%. In terms of margin, the full year, even excluding the others, is above 40%. So again, so very sure. Even if we consider CapEx and even leases, so we are growing margin year-over-year in almost one percentage point, 0.8%. So that means that we have a very solid cost structure that allowed us to continue having efficiencies and benefiting from digitalization and transforming the business.

David Melcon
CFO and Investor Relations Officer at Vivo

So for the next year, what we are seeing is that some of the costs that we have, particularly in the second half of the year and this quarter, that have to do with preparing the company to benefit from the concession. So we have been running some projects that obviously have a cost. This cost not only will not be for next year, but also we will have the benefit for what we have invested, particularly in this quarter. So once we start having the, as Christian mentioned, the sale of the copper and the real estate, what we will see is that for the future, we will see these others will also start to be positive, but not only in terms of net income and EBITDA, but also in terms of cash flow.

David Melcon
CFO and Investor Relations Officer at Vivo

In some cases, the cash flow will be even higher than the amount that you will see in EBITDA. So trying to answer your question, we always look to margin, but not only EBITDA, but also after leases and CapEx. We are optimistic in terms of improving the trends. I'm not talking about EBITDA margin. I'm talking more about EBITDA after leases and CapEx for the future.

Bernardo Guttmann
Equity Research Analyst at XP

Very clear. Thank you very much, David and Christian.

Christian Gebara
CEO at Vivo

Thank you, Bernardo.

David Melcon
CFO and Investor Relations Officer at Vivo

Thank you.

Operator

Our next question comes from Felipe Cheng from Santander. Please, Mr. Cheng, your microphone is open.

Felipe Cheng
Felipe Cheng
Senior Equity Research Analyst at Santander

Thank you. And there are two questions from my side. The first one related to B2B revenues and the fixed line segment. Even if we adjust for the acquisition of IPNET, the growth was very strong at 15% year-over-year. I was just wondering if there is anything specific to this quarter or if we should expect this strong level of growth to carry over to 2025. If you could maybe detail a little bit of what were the main drivers here for us to see such an acceleration versus the previous quarters. And my second question is related to the timing of the migration of these 1.2 million customers, which are currently using the copper technology, and what maybe we could expect in terms of revenue accretion and free cash flow margin for these customers once they are migrated.

Felipe Cheng
Felipe Cheng
Senior Equity Research Analyst at Santander

Any detail you can provide on that would be great. Thank you.

Christian Gebara
CEO at Vivo

So I start with the first one. No, there is nothing specific. That's the pace of the business. And apart from the 63 million that you correctly highlight, it's a small amount. We are talking about 63 million of IPNET over 1.9 billion that we have in total cloud revenue for the quarter. I think we've been highlighting that for the last quarters. We have a strong focus in the digital services. And in B2B, it represents 7.3% of our total revenue and is 21.2% of the B2B revenue. So it's like we are growing a lot in these lines. We are going cloud, we are going IoT messaging, and we are growing other different solutions. I think here is the result of our vast portfolio, partnerships, and also acquisitions, as we highlighted here. We also had another one of Vita that is a Cisco integrator some time ago.

Christian Gebara
CEO at Vivo

We have 5,000 salespeople dedicated to serve our 1.8 billion B2B customers in all the different segments. And if you consider the penetration of digital services that we sell through Vivo to these customers, it is around 15%. So that gives us room to increase it, especially when you go down the pyramid to customers like medium or small companies that have a very low penetration of digital services. So going forward, so over this BRL 11 billion or BRL 12 billion of revenues that we have in the quarter four, it's in B2B digital services. So it's 1/3. We grew 20%, but even the telco B2B revenues, apart from the loss that we have in voice, it grew 3.1%. So B2B, we think we have a structure that is difficult to replicate, and we could see growth going forward, both in telco and in digital services.

David Melcon
CFO and Investor Relations Officer at Vivo

Hi Tim, regarding the question on the concession, the 1.2 million customers that we have currently on copper, a large part of those are already on our fiber footprint. So we have already defined a plan to accelerate the migration. We cannot talk about how many will be in each year, but what we can say is that we have an internal target to capture a significant part of all those benefits in the first four years. So you will start seeing the benefit in a couple of quarters and in four years, a big part of the benefits.

Christian Gebara
CEO at Vivo

We're going to start right now, as David said, because as he mentioned before, we had some OpEx related to getting the company prepared for this accelerated migration. We did that last quarter, so now we are prepared to start doing that. So that's also we had this impact the last quarter that I'm going to repeat, and now we're going to start capturing the benefits of the migration.

Felipe Cheng
Felipe Cheng
Senior Equity Research Analyst at Santander

Very clear. Thank you very much.

David Melcon
CFO and Investor Relations Officer at Vivo

Thank you.

Operator

Our next question comes from Marcelo Santos from JPMorgan. Please, Mr. Santos, your microphone is open.

Marcelo Santos
Marcelo Santos
Senior Sell-Side Equity Analyst at JPMorgan

Hi, good morning, Christian, David, João. Thanks for the presentation opportunity to make questions. I wanted to touch a bit more about the concession migration and this 1.2 million customers. I think they generate BRL 1.3 billion, as you wrote in the presentation. How could we think about what are the elements that we could think to understand what kind of potential margin they could have? Like today, you say they have a negative free cash flow margin, and Vivo has a 15% operating free cash flow margin after leases in 2024. I mean, I understand you're not going to give a number, but what kind of elements could we think to imagine where this could get to? And the second question also related to these clients. I mean, I understand before the concession change, you could also migrate. You already migrated many copper clients over your life. What changed now?

Marcelo Santos
Marcelo Santos
Senior Sell-Side Equity Analyst at JPMorgan

Now you can force them to migrate or to leave. I mean, why are you going to accelerate now? Just wanted to understand better what kind of tools you have now that you didn't have before. Thank you.

Christian Gebara
CEO at Vivo

Thank you for the question, Marcelo. I will answer the second piece, and then David goes to the first and then repeat. Yes, you just highlighted. Yes, now we can see in a more precise way that they need to migrate. Before, we gave the option. Now we have the mandate to migrate customers. And now we have a lot of incentives to do it very, very fast. So it changes the way we approach customers once that it's a legal decision that we can migrate them to the new technology. It changed completely, and it gives us the right to do it in a very accelerated way. That's mainly the main reason that we do that in an accelerated way and with results in the short term. Regarding the first, David, if you want to talk a little bit more.

David Melcon
CFO and Investor Relations Officer at Vivo

Marcelo, regarding the first, I mean, we currently have a significant footprint of copper in São Paulo. So we don't share the number, but it's relevant. That means that the cost to maintain these homes is expensive. We have a specific contract to maintain the copper, different than the contract to maintain the fiber. So as I say, a significant part of the 1.2 million are already on the footprint of fiber. So we should be able to protect the revenues on fiber technology. That means that the margin could be similar to a traditional telco, decommissioning the infrastructure that we have today that is very expensive to maintain because, as Christian mentioned, we also are subject to regulation that forces us to repair all the infrastructure in a very short period of time, which at the end of the day is very expensive.

David Melcon
CFO and Investor Relations Officer at Vivo

From now on, we should be released from those obligations, not only for migration, but also to maintain on a different condition. This will have an impact from day one in OpEx and CapEx.

Marcelo Santos
Marcelo Santos
Senior Sell-Side Equity Analyst at JPMorgan

Perfect. Very clear. Thank you both.

Christian Gebara
CEO at Vivo

Thank you, Marcelo.

Operator

Our next question comes from Vitor Tomita from Goldman Sachs. Please, Mr. Tomita, the microphone is open.

Vitor Tomita
Vitor Tomita
Equity Research VP at Goldman Sachs

Hello, good morning all, and thanks for taking our questions. Two questions from my side. The first one, you mentioned when talking about margins, some increased commercial activity as a major driver for the largest cost line this quarter. Could you give us more detail on that and on whether that level of commercial spend was related to any specific initiatives or should remain the norm in upcoming quarters? And my second question would be actually on the side of fiber ARPU. Fiber ARPU has been declining a bit sequentially. Is this being driven by bundling discounts in Vivo Total or mostly just by competition, seasonality, or other factors? Thank you very much.

Christian Gebara
CEO at Vivo

Vitor, I will start with the second part of the questions and the fiber ARPU. I think first, let's highlight the growth in absolute numbers of revenues in fiber, 12.4%. So out of our total revenue of the quarter, the BRL 14.5 billion, 1.8 billion, it's already fiber and we've been expanding our footprint. We went from 26 million homes in the end of 2023 to 29.1 million homes in the end of 2024 so when you expand so much, also when you start selling to the new places, new neighborhoods, new cities, we have an entry point of customers in a lower price then we are able to migrate them to higher speeds or we end the promotions of entry new markets and that's impacting, of course, the ARPU and then secondly, there is also the combination of Vivo Total.

Christian Gebara
CEO at Vivo

Vivo Total gives us an upside in ARPU when you mix new customers that are coming in with both services with Vivo, customers that have only one of them with Vivo and ended up having both of them, so our strategy of doing Vivo Total, it's better to see in the customer perspective overall ARPU that is going up, and if you see the revenues coming from Vivo Total is also growing in a very strong way, and we are very positive that's the right decision, so again, it may impact individually a little bit the ARPU of the fiber that keeps in a very stable level. That combined with the new entries in new cities that I just described before is also impacting there.

Christian Gebara
CEO at Vivo

But we are being able to grow in absolute numbers, more than 12% revenues. That's already very relevant, 1.8 billion in the quarter, give you room of what we are doing and what we are able to do in the next quarters. Again, here also, it's good to highlight net adds of fiber customers in the last three quarters. We had 183,000 net adds in the fourth quarter 2023. We came to 192,000 in the third quarter 2024, and we reached now 220,000 customers in the last quarter. And also, we highlighted churn, 1.49%. So that's the right strategy. We're going to keep on doing that, expanding network, expanding penetration, and expanding Vivo Total.

David Melcon
CFO and Investor Relations Officer at Vivo

Vitor, regarding the other question on commercial cost and infrastructure, I mean, it's difficult to look at the run rate of a quarter just for the full year, because if you look to the trend on the line of commercial cost and infrastructure, even though in the quarter we grew 8.7%, the last 12 months, we grew 5.8%, where the run rate that we are seeing is more close to the one that we have seen for the last 12 months rather than just in one quarter. The commercial activity, Christian mentioned in terms of fiber, very strong, but also in mobile. I would say that also this quarter, we will not maintain the level of growth, particularly on infrastructure cost.

David Melcon
CFO and Investor Relations Officer at Vivo

As we said before, I mean, the second half of the year, particularly the last quarter, we were preparing the company also with some specific investments to make sure that we can accelerate some of the benefits that we'll be capturing from the migration, so as I said, the 5.8%, which represents the last 12 months, makes more sense as a run rate rather than the 5.7%.

Vitor Tomita
Vitor Tomita
Equity Research VP at Goldman Sachs

Good. Thank you very much.

David Melcon
CFO and Investor Relations Officer at Vivo

Thank you.

Operator

Our next question comes from Lucca Brendim from Bank of America. Please, Mr. Brendim, your microphone is open.

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Hi, good morning, everyone. Thank you for taking my questions. I have two here. First, also on the concession migration, can you give us some more color on the numbers related to the copper cables? As we understand from the 120 tons, not all of it is copper. You also have other materials. Can we have a rough estimate or any color on how can we think about how much that is actually copper? And second, also on this point specifically, what can we think about the extraction cost and the margin that you'll be selling this if this will be mostly related with the cost you already be having to install the fiber and then they'll both go together? Or if we can get any more color on that, that would be great. And second, you increased prices for hybrid and postpaid, but not for prepaid.

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

The gap for hybrid to prepaid continues to go up. Do you have any plans of increasing prices on prepaid in the future? Do you think that this larger gap might be a problem for upsell in the future as well? Those would be my questions. Thank you.

Christian Gebara
CEO at Vivo

Lucca, we are not giving details on the 120,000 tons of copper. Of course, most of it is copper. And that's going to give more visibility over the next months as soon as we also get into the more detail of the operation of extracting. Of course, there is a lot of value in the copper. You cannot say that it's going to be mitigated by the CapEx related to the fiber. The CapEx related to fiber today, the home pass, we are talking about less than BRL 200. So it's far from being what is penalizing us, the migration. And also the migration will be with an upside in revenues. Now, São Paulo, the state of São Paulo, is the key market for Vivo.

Christian Gebara
CEO at Vivo

We're going to get the benefit of extracting the copper, putting fiber, and also connecting these customers to fiber and capture not only the voice, but the broadband and even the TV, if it's the case, and also all the others, their digital services that are going to sell it. So of course, I don't have the number, but of course, it's much more positive for Vivo than it could be negative, and especially with the copper price. Regarding the price of prepaid, yes, you are right. I think prepaid requires a price increase. Hopefully, we're going to be able to do soon. But we keep migrating customers in a very positive way. So if you see the numbers of our net adds, it's not only migration, but there's a lot of migration. But if you also look, portability is also positive.

Christian Gebara
CEO at Vivo

Vivo keeps being the most attractive value proposition of the market. I agree with you. We have a challenge if there is a difference in pricing in prepaid. Hopefully, it's not going to be like this for the rest of the year. Let's see our strategy going forward.

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Very clear. Thank you for the answers.

Christian Gebara
CEO at Vivo

Thank you.

Operator

Our next question comes from Phani Kanumuri from HSBC. Please, Mr. Kanumuri, your microphone is open.

Phani Kanumuri
Phani Kanumuri
Equity Research Analyst at HSBC

Hello. Thank you for taking my questions. The first one is regarding the timeline for positivity due to the change of license agreement. So because of the change of migration, because of the migration of the license, you have some obligations as well as you have some CapEx and OpEx savings. So how do you see the impact on FCF? Is it going to be positive from the first year, or is it going to take some time to be positive? My second question is regarding your use of cash. So Vivo generated about BRL 8 billion of free cash flow, but has provided about BRL 6 billion of shareholder remuneration. So is there some other use of cash other than shareholder remuneration for Vivo? Is it planning for some acquisitions going forward? Thank you.

Christian Gebara
CEO at Vivo

Regarding the second question, yes, we are always looking at opportunities. As you know, our debt level is very low, even considering the leases, the IFRS 16. We acquired a company, IPNET, that I just described. We are always looking at opportunities. We continue to accelerate fiber expansion organically through our neutral network and always also checking opportunities for M&A. In the digital arena, also in B2C and B2B, as we're expanding, more than 10% of our revenues are coming from the services. We are also always very open to see opportunities that could add talent to our team, but also could accelerate our revenue expansion. Yes, your assessment is correct. Regarding the first part that David can answer you, the investments are 5 to 10 years. NPV considers OpEx and CapEx. I don't know specifically what was used.

Christian Gebara
CEO at Vivo

We could see that.

David Melcon
CFO and Investor Relations Officer at Vivo

So the investment that Christian said will happen from now to next 10 years, 10 years. And the OpEx will be those 10+10, so 20 years. As we said before, the benefit from the migration, we want to capture a big part of the benefits, real estate and copper, in the first four years. So in terms of speed of benefits and investment, we will maximize the value for shareholders and all of it, maximizing the free cash flow in the coming years.

Phani Kanumuri
Phani Kanumuri
Equity Research Analyst at HSBC

Thank you. And a quick follow-up. Is there any change in CapEx envelope because of the migration? Thank you.

Christian Gebara
CEO at Vivo

We don't give guidance. And we are working on, as we said before, growing revenue, EBITDA above inflation, and reducing CapEx intensity over revenues. And that's what we're going to continue doing.

Phani Kanumuri
Phani Kanumuri
Equity Research Analyst at HSBC

Thanks, everyone, for the answers.

David Melcon
CFO and Investor Relations Officer at Vivo

Thank you.

Operator

The Q&A session is over. We would like to hand the floor back to Mr. Christian Gebara for the company's final remarks. Mr. Gebara, the microphone is yours.

Christian Gebara
CEO at Vivo

Thank you, everyone, for participating. As I stated in the beginning, we are very pleased with the results and very optimistic with the quarters to come. Based on our unique value proposition, focus on customer lifetime value, and our strong ability to monetize our superior customer experience and leadership in all the segments, in all the products, and in all the services. If you have any additional questions, please, you can reach all of us here in the Vivo team. Thank you.

Operator

Vivo's conference is now closed. We thank you for participation and wish you a very good day.

Analysts
    • Vitor Tomita
      Equity Research VP at Goldman Sachs
    • David Melcon
      CFO and Investor Relations Officer at Vivo
    • Lucca Brendim
      Equity Research Associate at Bank of America
    • Leonardo Olmos
      Deputy Head of Brazil Research at UBS
    • João Pedro Soares Carneiro
      Investor Relations Director at Vivo
    • Marcelo Santos
      Senior Sell-Side Equity Analyst at JPMorgan
    • Camila Koga
      VP and Equity Research Analyst at Bradesco BBI
    • Christian Gebara
      CEO at Vivo
    • Bernardo Guttmann
      Equity Research Analyst at XP
    • Felipe Cheng
      Senior Equity Research Analyst at Santander
    • Phani Kanumuri
      Equity Research Analyst at HSBC
Powered by Quartr